US stocks rise on employment growth; Dow gains 147

U.S. stocks rose Friday, sending the Standard & Poor's 500 Index to the biggest rally in three weeks, after government data showed the nation added more jobs than forecast last month.

Lincoln National Corp. climbed 5.4 percent, leading a rally among life insurers as bond yields surged on bets the Federal Reserve will begin to reduce its asset buying. KeyCorp advanced as Wells Fargo & Co. said regional banks benefit more than larger rivals from new rules on capital. Tesla Motors Inc. added 4.2 percent after saying it received enough orders to double the number of electric cars in Hong Kong. Homebuilders slumped amid concern rising interest rates may curtail a housing recovery.

The S&P 500 gained 1 percent, the most since June 13, to 1,631.89 at 4 p.m. in New York. The index advanced 1.6 percent for the week. The Dow Jones Industrial Average added 147.29 points, or 1 percent, to 15,135.84. About 4.95 billion shares changed hands, 24 percent below the three-month average. U.S. markets were closed yesterday for the Independence Day holiday.

"The jobs report is pretty strong. It's a good number for equities because it's supportive for earnings growth, which is what we need," Matthew Peron, head of active equities at Northern Trust Corp. in Chicago, said by telephone. His firm manages about $810 billion. "We have to digest the backup in yields, we have to see how far do they go and get used to that level of rates."

Payrolls rose by 195,000 workers for a second straight month, the Labor Department reported today in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6 percent, while hourly earnings in the year ended in June advanced by the most since July 2011.

Fed Stimulus

Economic growth amid monetary stimulus from the Federal Reserve has helped send the S&P 500 up 141 percent from its bear-market low in 2009, including a 14 percent rally so far this year. The index has slipped 2.2 percent from its last record on May 21 after Fed Chairman Ben S. Bernanke said the central bank could begin to reduce bond purchases should the employment market show sustainable growth.

"Part of this focus on the Fed easing is that they haven't been enthusiastic about the underlying economics," said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. "If investors can be reassured about that, then it opens the door to a more sustainable rally."

Equities rose earlier today as European Central Bank President Mario Draghi predicted that interest rates will remain low for an extended period of time. Draghi said yesterday that key interest rates will remain at their current levels or lower for as long as necessary. The Bank of England signaled that it will leave interest rates at a record low for longer than investors had expected.

Earnings Season

Alcoa Inc. will unofficially start the second-quarter earnings season as the biggest U.S. aluminum producer will report results after the market closes on July 8.

Profits for S&P 500 stocks probably grew 1.8 percent, according to analyst estimates compiled by Bloomberg. That's down from a projected increase of 6.2 percent at the beginning of the quarter. Earnings are forecast to jump 5.5 percent for the third quarter and 11 percent for the final three months of this year, the data show.

"We know this is not going to be a terrific earnings season," Northern Trust's Peron said. "The focus will be on guidance - are we going to get improvement as the year continues, which is in expectation? The criticism of the market has been that it has been supported by Fed actions and now this is the time for that hand-off to happen."

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, or VIX, slipped 8.1 percent today to 14.89, the lowest level since May 30. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has since fallen 27 percent.

Lincoln, the life insurer with more than $200 billion in assets, climbed 5.4 percent to $38.98. Higher interest rates can boost profits for life insurers, which invest premiums from clients in bonds and other assets to back future payouts. MetLife Inc., the largest U.S. life insurer, gained 2.7 percent to $47.52.

Regional Banks

Regional lenders rose as KeyCorp, Ohio's second-largest bank, jumped 5 percent to $12. Smaller banks face less onerous risk weightings for residential mortgages under the Basel Committee on Banking Supervision's latest set of global standards, Wells Fargo analyst Matthew Burnell wrote in a note. The capital rules are scheduled to be decided next week.

Tesla Motors Inc. added 4.2 percent to a record $120.09 after saying it received hundreds of orders for its new Model S sedan, enough to double the number of electric cars on Hong Kong's streets. The company, headed by billionaire Chief Executive Officer Elon Musk, has forecast it will sell 21,000 units of the Model S globally this year, with deliveries to Europe and Asia beginning in the second half.

Zoetis Inc., the animal-health company spun off from Pfizer Inc., gained 3 percent to $30.17. Bank of America boosted the stock's rating to buy.

Homebuilders Sink

An S&P index of homebuilders fell 3.4 percent to the lowest level since December as Treasury yields rose to the highest level in almost two years. All its 11 members retreated. Toll Brothers Inc. dropped 3 percent to $31.52 while Lennar Corp. slipped 4 percent to $33.93.

A Bloomberg index of real estate investment trusts that buy mortgage debt tumbled 3.9 percent for the biggest retreat since October 2011. Annaly Capital Management Inc., the largest of the companies, plunged 5.1 percent to $11.51 and American Capital Agency Corp., the second biggest, slumped 5.3 percent to $20.76.